The Political Nature of Entrepreneurship in Developing Countries

Experimental Evidence from Tunisia and Senegal

Robert Kubinec
rmk7@nyu.edu

New York University Abu Dhabi

Abhit Bhandari

Temple University

Sekou Jabateh

New York University Abu Dhabi

Hamza Mighri

International Monetary Fund

October 27, 2023

Introduction

Research Question

  • Considerable research has shown how political connections shape the performance of companies, especially in developing countries with weak state institutions (Earle et al. 2019; Fisman 2001; Haber, Razo, and Maurer 2003).

  • Compared to simply considering corruption, political connections encompasses a range of both formal or informal relationships to government officials (Faccio 2010).

  • To what extent are political connections a barrier to entrepreneurship, and can connections be exogenously increased and thus result in more egalitarian entrepreneurship?

Preview of Findings

Multi-Stage Research Design

  • Stage 1: Recruit quasi-representative sample of young people (ages 18 - 30) via Facebook ads. Screen for interest in entrepreneurship or government careers.

  • Then invite this sample to a second survey with a larger mobile credit (~$10 USD).

  • Second survey contains a conjoint experiment (4 tasks) compares two hypothetical entrepreneurs and includes connections (father’s profession, membership in ruling party) as attributes.

  • In total, we collected 609 responses in Senegal and 501 in Tunisia (N for conjoint is 8,156),

Multi-Stage Research Design

  • Stage 2: Run in-person field experiment by inviting random sample of survey respondents to entrepreneurship training.

    • Respondents given incentive to cover travel costs.

    • We hired entrepreneurs to design and run workshops in both Tunisia and Senegal.

    • We used pre-test and post-test surveys to measure political connections exactly.

      • Government officials from business development agencies invited to present.

  • In total 83 participants; all others are controls.

Multi-Stage Research Design

  • Finally, we re-contacted respondents 1 year (Tunisia) and 6 months (Senegal) after completion of the training. All respondents filled out the complete initial survey instrument.

  • Recontact rates were 57% for Tunisia and 78% for Senegal (attrition generally occurred in the control group).

Descriptives

Types of Political Connections

Do Connections Matter for Entrepreneurship?

Conjoint Results

Field Experiment Results

ITT of Treatment on Intentions and Startup Attempts

Mechanism: Interactions with Officials

ITT Mediated by Exogenous Increase in Connections

Effect Outcome Mediator Type 5% Median 95%
Direct Intentions General 0.029 0.062 0.098
Direct Start Business General 0.112 0.176 0.250
Direct Intentions Parliamentary 0.050 0.089 0.124
Direct Start Business Parliamentary 0.120 0.180 0.264
Indirect Intentions General 0.001 0.004 0.009
Indirect Start Business General 0.000 0.002 0.006
Indirect Intentions Parliamentary -0.003 0.000 0.002
Indirect Start Business Parliamentary -0.001 0.000 0.001
Proportion Mediated Intentions General 0.065 0.179 0.346
Proportion Mediated Start Business General -0.005 0.034 0.084
Proportion Mediated Intentions Parliamentary 0.028 0.102 0.202
Proportion Mediated Start Business Parliamentary -0.018 0.019 0.054

Long-term Effects

Outcome Type 5% Median 95%
Employ People Direct Effect -24.109 -7.315 10.099
Employ People Mediation General -2.618 0.283 2.918
Employ People Mediation Parliamentary -5.604 -2.709 0.112
Own Business Direct Effect -0.014 0.107 0.256
Own Business Mediation General 0.007 0.027 0.046
Own Business Mediation Parliamentary 0.000 0.018 0.035
Pay Salary Direct Effect -0.379 -0.191 0.037
Pay Salary Mediation General -0.005 0.026 0.056
Pay Salary Mediation Parliamentary -0.009 0.028 0.061
Quit Business Direct Effect 0.076 0.214 0.346
Quit Business Mediation General 0.012 0.031 0.046
Quit Business Mediation Parliamentary 0.017 0.042 0.065

Did We Convince Them Connections Don’t Matter?

Conclusion

  • It does seem that we can manipulate perceived connections through meetings with government officials.

  • Increasing connections does seem to contribute to improved odds of perceived interest in entrepreneurship–and probably success as well.

  • Effects of the treatment on interest/attempts last over the long-term, but not the political connections component.

Examining Political Connection Relationships

Connections and Income

Connections and Entrepreneurship

Connections and Public Sector Interest

Qualitative Analysis of Connections

  • We also asked people to describe the connections using open-ended text responses:

    • Our relationship isn’t close at all because he thinks I need something from him when I’m not in I only think about my future so I don’t count on him
    • We see each other no more than twice a year.
    • He’s my namesake he was a former Minister of State
    • None strangely, he doesn’t even know me but I know he is a distant family relation
    • Gives a lot of importance to me, a welcoming person, keep your head up
    • Professional relationship in the context of finding a job
    • He’s my father’s uncle. He was political adviser to the President of the Republic
    • He’s like a father to me because he’s a friend of my uncle
    • I am a member in a political party currently (pdl)

References

Earle, John S., Scott Gehlbach, Anton Shirikov, and Solomiya Shpak. 2019. “Preventing Predation: Oligarchs, Obfuscation, and Political Connections.” https://doi.org/10.2139/ssrn.3501060.
Faccio, Mara. 2010. “Differences Between Politically Connected and Nonconnected Firms: A Cross-Country Analysis.” Financial Management 39 (3): 905–27.
Fisman, Raymond. 2001. “Estimating the Value of Political Connections.” The American Economic Review 91 (4): 1095–1102.
Haber, Stephen, Armando Razo, and Noel Maurer. 2003. The Politics of Property Rights: Political Instability, Credible Commitments, and Economic Growth in Mexico, 1876-1929. Cambridge University Press.